Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
The Scaled Tariff, a Single Country Variable Tariff, Is All That Is Needed to Balance Trade
Trump is being importuned to impose a border tax. A border tax is foolish and unnecessary. In the first place, it applies to all our trading partners even those with whom we enjoy a chronic trade surplus. The problem that needs correction are our chronic trade deficits with a handful of countries that has impoverished millions of American manufacturing workers. That is easily corrected by scaled tariffs which rise and fall automatically as the trade deficit widens or contracts. The scaled tariff is a single country variable tariff which has the virtue of raising huge amounts of revenue so long as the trade deficit remains substantial.
The scaled tariff requires no new bureaucracy because tariffs already exist and are administered by an existing revenue authority. A border tariff is a new tax and will require a new bureaucracy to determine how large it should be and to administer it. A border tax imposed on imports from countries with whom we have a trade surplus is an undesirable mercantilist policy on our part, something we oppose when others do it. International law recognizes the right of nations to impose tariffs for the purpose of correcting a trade deficit.
Trade deficits have a number of causes ranging from difference in countries’ savings rates, unjustified wage differences, unjustified barriers to imports and subsidies to exports, and exchange rate manipulation, inter alia. Regardless of their cause, countries have the right to impose tariffs so long as the trade deficits continue.
The U.S. government has the obligation to ensure balanced trade with every major trading partner over the long-run. Balanced trade is always beneficial to all trading partners in the long-run. Unbalanced trade is often beneficial to countries importing capital goods to produce more goods or new goods for their own residents. Many of the countries with which we have a favorable balance of trade are in this category.
What we want to avoid is the practice of some of our trading partners to secure a favorable balance of trade with us in order to gain a competitive advantage at the expense of our workers and manufacturers. It is no secret who they are. In 2014, the US trade deficit with the rest of the world amounted to $727 billion. Our trade with China accounted for $343 billion or 47% of the total, Germany $73.9 billion or 10.2%, Japan $67.2 or 9.2%, Canada $35 billion or 4.9%, Mexico $53.8 or 7.4 percent, Saudi Arabia $28.3 or 3.9%, Italy $25.1 or 3.5%, South Korea $25.0 billion or 3.4%, India $22.6 billion or 3.1%, and France $15.6 billion or 2.1%. These countries account for nearly 95% of our total trade deficit.
By contrast, we had a surplus with Hong Kong of $35.0 billion, the Netherlands of $22.3 billion, Belgium of $13.9 billion, with Singapore of $13.8 billion, and with Brazil of $11.9 billion. There is no reason why we should impose tariffs or other barriers on our trade with countries with which we have a trade surplus.
Trump needs to depend on rules rather than negotiate concessions. Making a deal involves jaw-boning, giving up some of what you desire to get as much of what you desire as possible. Our Scaled Tariff is all that is needed and requires no consent from anyone and is permitted under international law. Trump, a great deal-maker develops persuasive arguments supporting his desires. But it creates uncertainty, whereas the scaled tariff is certain to be invoked if countries pursue for any reason policies to beggar American workers.
The office of Trade representative should be re-titled as the office of crony-capitalism. In order to reach a trade agreement, boath parties seek advantages in the form of low duties and open markets but so do our trading partners. If one of our industries benefits, it is likely to be at the expense of some rent-holder in the other country and vice-versa. A trade agreement necessarily has winners and losers in each country. Crony capitalists benefit in each, opposition capitalists lose in each. Some truths Trump must recognize. Power corrupts and absolute power corrupts absolutely. Bureaucats should have little discretion is deciding who benefits and who bears the burdens. The basis of all corruption of government officials is their ability to make you rich or poor. Bureaucrats should not have only the power to enforce rules. Crony-capitalism is at the heart of all corruption.
Journal of Economic Literature:
Atlantic Economic Journal: